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Five years later, most say bailout was right

Rochester Business Journal

September 20, 2013

More than half of respondents to this week’s RBJ Daily Report Snap Poll say the government was right to bail out major U.S. financial institutions in response to the crisis triggered by the Lehman Brothers collapse in September 2008.

Sunday marked five years since the Wall Street icon filed for bankruptcy, an event that brought the global financial system to the brink and pushed the economy into the worst recession since the Great Depression.

In the wake of the Lehman collapse and Bank of America Corp.’s agreement to acquire Merrill Lynch & Co. Inc., the stock market plunged and the Federal Reserve was forced to bail out insurance giant American International Group. Days later, regulators seized Washington Mutual Bank, the nation’s largest savings and loan association. In early October, President George W. Bush signed legislation to create the Troubled Asset Relief Program, which authorized spending $700 billion to stabilize the financial sector.

In a subsequent October 2008 poll, two-thirds of Snap Poll respondents said they were not confident that TARP would produce a long-term solution to the U.S. financial crisis. And 80 percent said it was somewhat or very likely the U.S. economy would fall into a long, severe recession.

While the recession had started in December 2007, the Lehman bankruptcy caused it to worsen dramatically. Over the next six months, employers cut more than 4 million jobs. Unemployment peaked at 10 percent in October 2009.

The recession officially ended in June 2009. Household net worth and the stock market have recovered fully, and most of the taxpayer money used in the bailout has been repaid. But the jobless rate remains over 7 percent, and total employment is still nearly 2 million less than it was in 2008.

More than 70 percent of respondents to the current poll say changes to U.S. financial regulation since 2008 have made the economy no more secure.

And more than three-quarters of respondents say they have been personally affected by the financial crisis and severe recession it caused.

Was the government right to bail out major U.S. financial institutions in response to the crisis triggered by the Lehman Brothers collapse?
Yes: 56%
No: 44%

Have changes to U.S. financial regulation since 2008 made the economy more secure or no more secure?
More secure: 28%
No more secure: 72%

How much were you personally affected by the financial crisis and severe recession it caused?
Very much: 31%
Somewhat: 47%
Not very much: 19%
Not at all: 3%

COMMENTS:

The Federal Reserve Bank averted depression in the U.S. (and probably worldwide), so that is a “yes.” They flooded the broad-based money supply with newly printed dollars and inflated us out of it. Money in circulation is up over 35 percent since this all started. How they “unwind” quantitative easing will be the ultimate test of how good of a job they did. If inflation and interest rates spike up, or the stock market turns out to be a “bubble” and bursts, or unemployment remains historically high, then the answer is “no.” I think the jury is still out, so it’s premature to say. One thing is for sure: The next Federal Reserve Bank chairman faces enormous challenges.
—George Thomas, Ogden

When you invest, you understand that you take a risk. Some investors took additional risk by leveraging debt to invest. All of these people were made whole and suffered little loss, even though they should have. Banks took risk by lending without proof of repayment and no or little down payment. There was no cushion when real estate prices fell. They were given money. So the vast amount of money went to the investors and banks that took risks and should have felt the pain of those bad decisions. Instead, the pain was felt by the average citizens that lost their job or lost their house.
—Joel Stauring, Cunningham, Stauring and Associates

They had no other choice. They averted a major meltdown. (It was Federal Reserve Chairman Ben) Bernanke’s finest hour as he led a group of high-powered officials and bankers through this on a Sunday night and early morning before Wall Street opened.
—Ed Rosen

Unfortunately the “bailout” ignored the workforce, the people who actually have to earn a wage and who actually purchase goods and services. The banks and the automobile companies have since turned massive profits, paid their usual bonuses and celebrated their immunity from prosecution for malpractice. No, we “bailed out” and “inoculated” the people that pushed us into a financial disaster. Both Democrats and Republicans earn solid “F” ratings for those actions.
—Wayne Donner, Rush

This recession is not over. Millions of people in the U.S. are at or near poverty level. Where are the jobs that pay a true living wage—for everyone?
—Eve Elzenga, Eve Elzenga Design

We need to reinstate the controls put in place by Franklin Roosevelt, which worked well for 70 years. Those responsible should have been fired without pensions or golden parachutes and banned from investment banking for life. Many should have gone to federal prison.
—Carlos Mercado

The bailout should have been a lesson. The post-crisis intent was there, but the laws drafted to protect people and the industries, like Dodd-Frank, have been so watered down or delayed by special interests driven only by greed. Capitalism is good, but unchecked risk without responsibility is a danger. There are lessons to be learned from earlier mistakes, but some believe that their bets cannot go wrong and thus are above the fray—until?
—M. Zukerman

As any good parent knows, rewarding bad behavior creates more of the same. If there is such a thing as “too big to fail,” break up those companies now. If anyone believes that the new financial regulations have made the economy more secure, please tell me why Jon Corzine (former chief of the brokerage firm MF Global) is a free man?
—Karen Zilora, Creative Scanning Solutions Inc.

The bailout was unpalatable but necessary, as was the stimulus package. And both were successful, textbook cases of government response to economic calamity. It is unfortunate we have an obstinate and obstructionist party in the House of Representatives that still prioritizes political ideology over economic recovery. We would be a lot farther along to full recovery and employment if Congress was functional.
—Lance Guglin, Performance Technologies

The financial health and/or failure of our economy is cyclical and will remain that way until we realize that overzealous speculation of any type is the problem. It really doesn’t matter what the stock market does. Ultimately, it’s not real. It, too, is speculation. If a corporation promises to earn 6 percent for the upcoming quarter and only achieves 5 percent—is that an unprofitable enterprise? Only in the eyes of the speculator. Chances are it’s still a profitable, well-run company that employs thousands, supports families and engages hundreds of other vendors to conduct its daily business. The bailouts did nothing to change this. In fact, I believe the Fed closed far too many small banks and forced them to be absorbed by a handful of larger ones. Having so few banks control so much of our financial world puts our economy in much more jeopardy of failing than ever before.
—Todd Baker, Henrietta

The bailout should have (had) more consequences for the bankers. Giving them free money basically gave them a get-out-of-jail-free card.
—Damian Kumor

The Wall Street bailout and Dodd-Frank regulations that followed have dried up small-business bank loans and caused immense damage to the economy. It was another example of people in government saying “we need a law,” when in fact all we needed was to let the people who made the mistakes fail. Instead, they made millions off the bailout and the rest of us got more banking regulations that make borrowing for an average small to medium business all but impossible, which continues to be a huge wet blanket on our economy.
—Bob Sarbane

All the smart guys who approved the checks thought so. All the smart guys who got the checks thought so. I guess that makes it the right decision. After all, they are smarter than us—who cover the checks.
—Jay Birnbaum

It seems that we, as a nation and as individual citizens, have become accustomed to looking for solutions to every problem through some sort of governmental intervention. Expansion of governmental activity in our personal and corporate lives only results in increasing dependency on government and less effort on the part of the individuals and corporations that drive our economy. People and organizations who make bad decisions should have to give account for their actions and not fall back on some form of government assistance to get them out of trouble.
—Robert W. Zinnecker, Penfield

Was it right to preserve the equity of failing institutions so that the principals could continue to reap millions while millions suffered the ill effects of their bad governance? No, it wasn’t. The better question is “What would have happened if the government hadn’t bailed out the big banks?” No one will ever know.
—John Calia, chair, Vistage International

The government should have bailed out Lehman Brothers, too. Lehman Brothers should have gotten the same help that Goldman Sachs got, but look who was the secretary of the Treasury at that time. It's not what you know, but who you know. The reason we're safer now is because it will be another 15 years before we go through this same thing all over again, after Wall Street and the big banks figure out a new way to get the best of us.
—Clifford Jacobson M.D. Vanguard Psychiatric Services PC

We don't have the best minds in Congress pulling together to address our country's challenges and opportunities. A recent glimmer of bipartisan good sense was the Regulation Improvement Act introduced by independent Sen. Angus King from Maine and Sen. Roy Blunt, Republican, Missouri.
—Carolyn Phinney Rankin, president/creative director, Phinney Rankin Inc.

Wall Street literally got away with murder! I think if a few people "at the top" did a perp walk combined with a weekend in jail, many of us would feel a whole lot better. I don't buy the argument that the "charges" are too difficult to prove, therefore we shouldn't pursue them. Many of the people who were supposed to investigate these financial criminals couldn't wait to get a job on Wall Street. I think it was Bob Dole who said: "You know you're guilty; I know you're guilty; we all know you're guilty.”
—Pete Bonenfant

If government, through laws and regulations, had not damaged our country's economic system that had made us such a thriving and rich nation, I would have to say no bailout should have happened. However government has, since shortly after the Civil War, veered away from that laissez-faire capitalism. Since the 1870s, Carl Marx’s lure of the mythical socialist utopia captured the minds of legislators such as Teddy Roosevelt and many others. The progressive movement was begun and would proceed into the 20th century. Thus in the name of fairness, government has intruded upon the free movement of capital and used artificial means in its attempt to make everything fair for everyone through its regulation of business. Many businesses became too big to fail because their failure would point a finger at the futility of government planning. The people would then realize that government was not infallible and demand a return to a free market. It’s urgent that more people read Ayn Rand’s “Capitalism: The Unknown Ideal.” Other required reading (suggested): The United States Constitution.
—Michael F. Kloppel, chairman, Ontario County Conservative Party

Some moves to solve the crisis were right, some wrong. I feel that all were meant with good intention. What bothers me is that we have spent way too much emotion trying to figure out why. In the 1990s, our government went about dismantling many of the checks against this that were put in place after the Great Depreciation. When the Great Recession hits, we fought to lay blame on everyone but ourselves. Yet, we all enjoyed the ride up. If there were one key thing we need to correct (there are more than one), I would focus on the too-big-to-fail issue. Although it has been mentioned, anyone with half a brain would realize that the financial institutions and businesses are even bigger. We could go a long way to eliminate the too-big-to-fail issue, but that would require those in charge to release the Congress and president to act properly and lead. If you read the papers, follow the news, drill down on what is really happening, you will find that there was no conspiracy, no plan of attack. We the people created a system that allowed the very few to control the government that tries to control the very many. The 1 percent of the 1 percent want to rule the world and they have no standing army, no WMDs, just a lot of money. While we try and bring down the John Galt's of the world, we fail to see the bigger fish.
—Bill Lanigan

What You're Saying

michael thornton at 11:17:30 PM on 9/20/2013

Interesting. Most say it was the right thing to do, but the facts say otherwise. According to Forbes, "Business failure hardly constitutes business disappearance, and the beauty of failure is that it ensures that poorly managed assets are released at frequently low prices to... Read More >

Interesting. Most say it was the right thing to do, but the facts say otherwise. According to Forbes, "Business failure hardly constitutes business disappearance, and the beauty of failure is that it ensures that poorly managed assets are released at frequently low prices to managers with a stated objective to develop those human, mechanical and financial inputs more effectively on the way to growth." Dean Baker said, "This means that “financial Armageddon” would have meant the demise of Goldman Sachs, Morgan Stanley and most of the other Wall Street titans, but probably would not have led to a qualitatively worse economic situation for the rest of us than what we actually saw."

While the bank bailouts were bad enough and not necessary, the real tragedy is that not one bankster was prosecuted for a crime and there were many crimes committed, not least of which was mortgage fraud. These banking cretins were brought to justice in the 1990s under William Black when more than 1000 banksters went to jail. Yet under Obama and the fawning regulatory system, not one banker is behind bars. America was robbed twice; once with TARP and once when criminals didn't spend a day in jail for their crimes. < close

Allesandra Snow at 2:11:57 AM on 11/22/2013

When it comes to bailout, the first thing that comes into my mind is Fannie Mae and Freddie Mac. This two, are government-backed home loan insurance and brokerage businesses, they have been in large financial trouble for years. Both have obtained billions in taxpayer-funded ... Read More >

When it comes to bailout, the first thing that comes into my mind is Fannie Mae and Freddie Mac. This two, are government-backed home loan insurance and brokerage businesses, they have been in large financial trouble for years. Both have obtained billions in taxpayer-funded loans. However, Fannie has posted its first profit since 2008 and declined any federal loans for the time being. Source for this article: https://personalmoneynetwork.com/installment-loans < close